China's CNOOC abandons US oil bid

China's CNOOC Limited has abandoned its $18.5 billion offer to acquire US oil and gas producer Unocal Corporation in the face of strident political opposition, clearing the way for Unocal to conclude a deal with US oil major Chevron Corporation.

02 Aug 2005 14:36 GMT

CNOOC made its all-cash bid of $18.5 billion on 22 June

Unocal shares opened lower on the news, while Chevron shares were flat.

The decline brought the price of Unocal's stock roughly in line with the Chevron bid of almost $64 a share, or about $17.3 billion.

CNOOC made its all-cash bid on 22 June, topping the early-April cash-and-stock offer from Chevron, but it faced an uphill road in the United States from the start. CNOOC's parent company is controlled by the Chinese government.

CNOOC Chairman Fu Chengyu, the driving force behind the bid, in the end listened to his political advisers, who had warned of the high political hurdles the transaction faced.

Regrettable and unjustified

"CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the US," the company said in a statement.

It called the political response to its offer "regrettable and unjustified".

Some members of the US Congress sought to block the deal almost from the start.

"This is good for CNOOC. It clears away the uncertainty risks"

John Koh,fund manager,Daiwa Asset Management

Last week a congressional conference committee added a provision to a broad energy bill that would have delayed the necessary government review of CNOOC's offer by months.

In public filings related to the Chevron offer, Unocal made clear that it had been willing to accept the CNOOC bid under certain conditions - conditions CNOOC ultimately chose not to meet.Uncertainty risks cleared

CNOOC shares rose to a new record high in Hong Kong trading on Tuesday before the company made the expected decision to withdraw its bid, gaining 2.8% to HK$5.50.

"This is good for CNOOC. It clears away the uncertainty risks," said John Koh, fund manager at Daiwa Asset Management, which holds CNOOC shares.

Unocal shareholders are to vote on the Chevron offer on 10 August. If they approve the deal, it is expected to close as soon as that afternoon.